‘In’ or ‘out’ equals uncertainty

Published: 22 July 2015

The pre-election clouds of insecurity have passed. However, another front of uncertainty looms as the new Conservative led government push forward on an ‘in/out’ referendum on the UK’s membership of the EU.

There is a consensus of opinion that leaving the EU will have a negative impact on the real estate industry in the UK. A major concern is a decline in foreign investment. Major economies such as the US, China, India and Japan currently perceive the UK as a gateway into the EU. Such a perception will surely change though if the UK were to lose influence in Brussels.

So an EU ‘out’ vote will have a negative impact as the UK is no longer seen as a ‘gateway into Europe’. The ease of free trade as an EU member and the ability to lobby/influence in Brussels are certainly major sacrifices. However, concerns should be slightly tempered. With other European property markets enduring a more ‘stuttering’ recovery and threats such as a Russian conflict on eastern borders and a Greek exit from the Euro, foreign investors see the UK property market itself as a safe haven. It is currently the most bullish of the European property markets. It is also the most established and sophisticated with bodies and professionals that set precedence, and have influence and experience in pan European real estate. This will continue to draw foreign investors with European ambitions to the UK. Finally, London’s position as Europe’s financial centre means the UK will continue to be seen as the launch place for investors even without EU membership.

The decline in major corporations setting up their European HQ in the UK may well occur but, again, the UK offers more than the just the benefits that come with being an EU member. The UK is a global centre for finance, insurance, technology, education etc. Each would be affected in some way by an EU departure but the UK, in its own right, has international standing in these sectors and ongoing development/growth will continue regardless of EU membership.

Far more likely, though, is an ‘in’ vote with David Cameron renegotiating a better deal with Brussels. Favourable conditions and retaining EU membership is obviously an all round win for the UK. However, renegotiations and the changing of terms will take at least two years and so a further prolonged period of uncertainty surrounding the UK. In fact an ‘out’ vote would result in a similar period of uncertainty as the UK would then negotiate individual and new trade deals with Member states.

Here is the key issue – it is less about the repercussions of an ‘in/out’ vote and more about the uncertainty cast by there being a vote at all and the lengthy period of renegotiations/negotiations that would then follow. Foreign investors would no doubt look on the UK more favourably if it remained in the EU. However, it is doubtful there would be an exodus if its membership was withdrawn as it would remain a major international financial centre and home to experienced professionals regardless. A period of indecision, though, will see foreign investors wait before they commit to the UK to see how the landscape looks after a referendum and the possible renegotiations. And it could be, in this time, they consider and commit to other financial centres in mainland Europe.

Memories of the global financial crisis and the long recession that ensued remain fresh in minds. So much so that it may not be fully appreciated how far into a bull market we are and possibly how close we are to the markets turning. Uncertainty is enough of a negative sentiment to threaten the recent years of recovery. The referendum has created clouds of uncertainty that will build whether the decision is ‘in’ or ‘out’ as lengthy renegotiations then occur to change UK’s membership terms or new trade deals are negotiated as a non-member. Limiting the period of uncertainty is crucial - the referendum, negotiations and the formation of the new landscape need to be pushed through as quickly as possible for investors to commit with confidence again to the UK.

Ben Ingram is a Principal Consultant in the Property and Real Estate Practice at Berwick Partners.